HM Revenue & Customs v Halcyon Films Llp

Section 101 of the Finance Act 2002 restricted enhanced relief under section 48 of the Finance (No 2) Act 1997 for successive acquisitions of small films. It did not, without clear words, remove the underlying three-year relief under section 42 of the Finance (No 2) Act 1992. Section 48 modified section 42 rather than creating a separate relief. Expenditure excluded from section 48 could therefore remain eligible under section 42. Later uncommenced consolidation provisions were not a safe interpretive aid, and no special taxpayer-favouring presumption was necessary because the statutory interrelationship was clear.

Halcyon Films LLP claimed relief for expenditure incurred acquiring three qualifying films. HM Revenue and Customs disallowed the claim under section 101 of the Finance Act 2002, arguing that the provision barred all acquisition relief under section 42 of the Finance (No 2) Act 1992 where the taxpayer was neither the producer nor a direct purchaser.

The Special Commissioners allowed Halcyon’s appeal. Davis J dismissed HMRC’s appeal, holding that section 101 prevented enhanced one-year relief under section 48 of the Finance (No 2) Act 1997, but did not prevent reliance on section 42. HMRC brought a second appeal on the construction and interaction of sections 42, 48 and 101.

1. Appeal dismissed. Section 101 restricted acquisition expenditure for the purposes of section 48; it did not bar all relief under section 42.
2. Section 101(1) naturally read as limiting relief under section 48 to an acquisition by the producer or directly from the producer. The words referring to acquisition expenditure, together with its definition in section 101(2)(a), would be redundant on HMRC’s broader construction. The provision therefore operated as an additional condition or category of excluded expenditure within the section 48 regime.
3. Section 48 operated as a modification of section 42, which remained the relieving provision. The statutory scheme contemplated expenditure falling outside section 48 but remaining eligible under section 42. If Parliament intended section 101 to exclude that expenditure from all section 42 relief, clear express language would have been expected.
4. Sections 99 and 100 of the Finance Act 2002 dealt with different matters and did not alter that construction. HMRC’s interpretation would create an unexplained and disadvantageous disparity between small and other films.
5. Sections 138 and 140 of the Income Tax (Trading and Other Income) Act 2005 were not a safe interpretive aid because they had never been brought into force and were promptly replaced. Nor did Carr (Inspector of Taxes) v Armpledge Ltd [2000] STC 410 establish a presumption in Halcyon’s favour. That authority concerned use of an existing relief in a manner not expressly prohibited, whereas the present issue concerned the meaning of later legislation qualifying an existing relief.
6. The respondent’s notice required no separate order.

• Court of Appeal (Civil Division): HMRC’s second appeal from Davis J was dismissed: [2010] EWCA Civ 261. Rimer LJ and the Chancellor agreed with Etherton LJ.
• Chancery Division: Davis J dismissed HMRC’s appeal from the Special Commissioners and upheld the availability of relief under section 42.
• Special Commissioners: The Commissioners allowed Halcyon’s appeal against HMRC’s closure notice.